For many years, high-stakes and high-cost litigation has plagued technology companies. Disputes between tech companies often cost millions of dollars in legal expenses and can take years to resolve through the courts. Meanwhile, decisions made by judges and juries without specific expertise can be tenuous and unpredictable.

But a new survey confirms that there is a better way: arbitration. The survey by Silicon Valley Arbitration & Mediation Center (SVAMC) found that in-house lawyers, along with those in private practice working in the technology sector, see significant benefits to choosing arbitration over litigation when working through disputes. Survey respondents identified the top three problems with litigation as cost (64 percent), time (57 percent) and inexperienced and unqualified judges (46 percent). And, the top benefits of arbitration were identified as expert decision-making (76 percent), timely resolution (54 percent) and increased privacy (40 percent).

Gary Benton, founder and chairman of the Silicon Valley Arbitration & Mediation Center (SVAMC), recently sat down with Inside Counsel to talk about the benefits of using arbitration to resolve disputes in the technology sector.

“Litigation cost is a problem for every industry in the U.S., but it's particularly burdening on the technology sector, where many tech companies are now spending more on litigation than on R&D,” he said. “Undoubtedly, the most significant factor is discovery, which can easily take up more than half the cost in a U.S. business litigation.”

As a former IP litigator, Benton says that most of that cost, sitting in depositions for days and days and responding to irrelevant written discovery, is a waste of money. The problem has become worse with the cost of e-discovery and most of the evidence in cases involving technology companies is electronically stored information. U.S. e-discovery is estimated to be a $46 billion business today.

“Part of the problem is the courts provide one system that must fit all,” he explained. “So, there isn't much opportunity for flexibility and having the parties agree on cost-efficient alternatives that work in a particular situation. Rather every case has costly discovery, no limits on motion practice, trials that become shows for juries, and a risk of years of appeals. Although it is clear companies say cost is the biggest problem with litigation, many companies tolerate it because major issues are at stake and they want to win, but don't know enough about the alternatives.”

The largest part of the problem is overcrowded court dockets, which is amplified by lengthy pretrial discovery and motion practice, plus the appeals and new trials. In fact, the average business litigation takes two to three years to reach a judgment in the U.S. courts. In major cases, appeals can extend the process to five to six years.

For example, the Apple v. Samsung case is a perfect example of the problem, according to Benton. Apple Inc. won a $1 billion jury verdict that went through appeals all the way up to the Supreme Court and back and, now, six years into the case, the parties are starting a new trial all over again. An IP litigator can appeal any case to the Federal Circuit, and the Federal Circuit overturns most trial court judgments. Then, there is the possibility for a Supreme Court appeal. While most cases settle, most corporate counsel don't consider the cost, time and unpredictability of litigation.

“There are many excellent, capable judges in the federal and state courts. The problem is that there are very few judges who have practiced IP law, worked in the technology sector, or have much hands-on experience with technology,” Benton said. “Let's face it, most judges in the U.S. must deal with criminal dockets and lots of other cases besides technology disputes. Of course, even with the most capable IP-trained, tech-savvy judge, U.S. cases are decided by juries which rarely have the level of legal and technical sophistication needed to understand, let alone properly decide, technology cases.”

As the survey shows, privacy is one of the top benefits of technology arbitration. Most businesses are not choosing arbitration solely because it is private and provides an opportunity for increased confidentiality. Instead, most companies select arbitration because they want efficiency and higher quality decision-making, but privacy is an advantage.

“Arbitration is conducted in a business setting, not in a courtroom,” he explained. “It can keep trade secrets and other confidential information safer and can provide an opportunity for more flexibility in reaching a resolution. Privacy can be very beneficial for most disputes between businesses but let me add it can also be abused outside of the B2B setting, particularly in the case of nonconsensual consumer and employment arbitration disputes.”

The most noteworthy part of the survey, per Benton, is that the largest percentage of survey respondents, 76 percent, consider expertise to be the top benefit of arbitration. It's an important recognition—that in arbitration you can select your decision-maker or decision-makers, people who are skilled in technology law and have some understanding about the subject matter of the case. The most surprising result is that many technology company counsel do not understand that U.S. court judgments aren't enforceable outside the country. In some international cases, going to court in the United States simply isn't an option.

According to Benton, usually parties agree to arbitration in advance in their business contracts. There is an increase in submission of cases to arbitration after a dispute arises but it's still a small percentage. So, that means that contract disputes—involving technology development, NDAs, technology investment, licensing and distribution agreements—are ideal for arbitration.

”We're also seeing a growing number of trade secret and data breach cases in arbitration,” he said. “As well, there is a clear trend upward in patent validity and infringement cases between technology companies. On the other hand, you're less likely to see noncontractual tort cases and patent claims by nonpracticing entities (NPES) being submitted to arbitration.”

International disputes have become critical for the technology sector. There are many rising technology companies in Asia, for example, and foreign technology companies are refusing to submit disputes to U.S. courts. That's fine because, often, it makes more sense to rely on international arbitration for cross-border technology disputes. But, it needs to be done properly: under the right rules, in the right place, with the right counsel and ADR providers—or problems can arise.

So, could that dispute—and many others in the courts today—be handled better through arbitration?

“Absolutely,” he said. “How about having a single case, on a worldwide basis, decided by a panel of experienced technology arbitrators, rather than a U.S. jury or foreign judges with limited IP expertise? It would have been decided in a fraction of the time, and be over today. I appreciate that Apple wanted to go to court in the U.S. because it knew it could win before a U.S. jury but it has little to show for it at this point. With arbitration, the parties would have had a final decision long ago, and would have saved significant sums, which could have been better spent on new technology development.”

As of late, SVAMC membership has been growing steadily, but a more significant indicator is the marketplace. Five years ago, one rarely heard the words “technology” and “arbitration” in the same sentence. Now, technology arbitration is viewed as one of the fastest-growing fields, and leading U.S. and international arbitral providers like AAA/ICDR, CPR, JAMS and ICC are reporting that technology-related disputes are a rapidly growing segment of their caseloads.

“What will be most telling is what we see from the contracts that are being written today—and the disputes that arise from them in years to come,” said Benton. “Given the cost, time and uncertainty of litigation, it's hard to ignore the benefits of arbitration. I think we'll continue to see a rise across the board in the technology sector—including in high-tech, biotech and alternative energy.”

He expects the most significant increase will be in cross-border disputes because the technology sector has become global, there is increasing resistance by non-U.S. parties to the cost and intrusiveness of U.S. court processes, and there are legitimate concerns by U.S. parties about the capabilities of foreign judges and the opportunity for fair hearings in foreign courts—particularly in developing countries.

He added, “Arbitration can be a great dispute resolution asset if you do it right. Doing it right includes drafting an appropriate arbitration clause, engaging outside counsel who know how to arbitrate not just litigate, and selecting a qualified arbitrator who knows your field and understands an arbitration is not a court case. Anyone who criticizes arbitration has done it wrong with the wrong clause, counsel or arbitrator, and has suffered the consequences.”

For many years, high-stakes and high-cost litigation has plagued technology companies. Disputes between tech companies often cost millions of dollars in legal expenses and can take years to resolve through the courts. Meanwhile, decisions made by judges and juries without specific expertise can be tenuous and unpredictable.

But a new survey confirms that there is a better way: arbitration. The survey by Silicon Valley Arbitration & Mediation Center (SVAMC) found that in-house lawyers, along with those in private practice working in the technology sector, see significant benefits to choosing arbitration over litigation when working through disputes. Survey respondents identified the top three problems with litigation as cost (64 percent), time (57 percent) and inexperienced and unqualified judges (46 percent). And, the top benefits of arbitration were identified as expert decision-making (76 percent), timely resolution (54 percent) and increased privacy (40 percent).

Gary Benton, founder and chairman of the Silicon Valley Arbitration & Mediation Center (SVAMC), recently sat down with Inside Counsel to talk about the benefits of using arbitration to resolve disputes in the technology sector.

“Litigation cost is a problem for every industry in the U.S., but it's particularly burdening on the technology sector, where many tech companies are now spending more on litigation than on R&D,” he said. “Undoubtedly, the most significant factor is discovery, which can easily take up more than half the cost in a U.S. business litigation.”

As a former IP litigator, Benton says that most of that cost, sitting in depositions for days and days and responding to irrelevant written discovery, is a waste of money. The problem has become worse with the cost of e-discovery and most of the evidence in cases involving technology companies is electronically stored information. U.S. e-discovery is estimated to be a $46 billion business today.

“Part of the problem is the courts provide one system that must fit all,” he explained. “So, there isn't much opportunity for flexibility and having the parties agree on cost-efficient alternatives that work in a particular situation. Rather every case has costly discovery, no limits on motion practice, trials that become shows for juries, and a risk of years of appeals. Although it is clear companies say cost is the biggest problem with litigation, many companies tolerate it because major issues are at stake and they want to win, but don't know enough about the alternatives.”

The largest part of the problem is overcrowded court dockets, which is amplified by lengthy pretrial discovery and motion practice, plus the appeals and new trials. In fact, the average business litigation takes two to three years to reach a judgment in the U.S. courts. In major cases, appeals can extend the process to five to six years.

For example, the Apple v. Samsung case is a perfect example of the problem, according to Benton. Apple Inc. won a $1 billion jury verdict that went through appeals all the way up to the Supreme Court and back and, now, six years into the case, the parties are starting a new trial all over again. An IP litigator can appeal any case to the Federal Circuit, and the Federal Circuit overturns most trial court judgments. Then, there is the possibility for a Supreme Court appeal. While most cases settle, most corporate counsel don't consider the cost, time and unpredictability of litigation.

“There are many excellent, capable judges in the federal and state courts. The problem is that there are very few judges who have practiced IP law, worked in the technology sector, or have much hands-on experience with technology,” Benton said. “Let's face it, most judges in the U.S. must deal with criminal dockets and lots of other cases besides technology disputes. Of course, even with the most capable IP-trained, tech-savvy judge, U.S. cases are decided by juries which rarely have the level of legal and technical sophistication needed to understand, let alone properly decide, technology cases.”

As the survey shows, privacy is one of the top benefits of technology arbitration. Most businesses are not choosing arbitration solely because it is private and provides an opportunity for increased confidentiality. Instead, most companies select arbitration because they want efficiency and higher quality decision-making, but privacy is an advantage.

“Arbitration is conducted in a business setting, not in a courtroom,” he explained. “It can keep trade secrets and other confidential information safer and can provide an opportunity for more flexibility in reaching a resolution. Privacy can be very beneficial for most disputes between businesses but let me add it can also be abused outside of the B2B setting, particularly in the case of nonconsensual consumer and employment arbitration disputes.”

The most noteworthy part of the survey, per Benton, is that the largest percentage of survey respondents, 76 percent, consider expertise to be the top benefit of arbitration. It's an important recognition—that in arbitration you can select your decision-maker or decision-makers, people who are skilled in technology law and have some understanding about the subject matter of the case. The most surprising result is that many technology company counsel do not understand that U.S. court judgments aren't enforceable outside the country. In some international cases, going to court in the United States simply isn't an option.

According to Benton, usually parties agree to arbitration in advance in their business contracts. There is an increase in submission of cases to arbitration after a dispute arises but it's still a small percentage. So, that means that contract disputes—involving technology development, NDAs, technology investment, licensing and distribution agreements—are ideal for arbitration.

”We're also seeing a growing number of trade secret and data breach cases in arbitration,” he said. “As well, there is a clear trend upward in patent validity and infringement cases between technology companies. On the other hand, you're less likely to see noncontractual tort cases and patent claims by nonpracticing entities (NPES) being submitted to arbitration.”

International disputes have become critical for the technology sector. There are many rising technology companies in Asia, for example, and foreign technology companies are refusing to submit disputes to U.S. courts. That's fine because, often, it makes more sense to rely on international arbitration for cross-border technology disputes. But, it needs to be done properly: under the right rules, in the right place, with the right counsel and ADR providers—or problems can arise.

So, could that dispute—and many others in the courts today—be handled better through arbitration?

“Absolutely,” he said. “How about having a single case, on a worldwide basis, decided by a panel of experienced technology arbitrators, rather than a U.S. jury or foreign judges with limited IP expertise? It would have been decided in a fraction of the time, and be over today. I appreciate that Apple wanted to go to court in the U.S. because it knew it could win before a U.S. jury but it has little to show for it at this point. With arbitration, the parties would have had a final decision long ago, and would have saved significant sums, which could have been better spent on new technology development.”

As of late, SVAMC membership has been growing steadily, but a more significant indicator is the marketplace. Five years ago, one rarely heard the words “technology” and “arbitration” in the same sentence. Now, technology arbitration is viewed as one of the fastest-growing fields, and leading U.S. and international arbitral providers like AAA/ICDR, CPR, JAMS and ICC are reporting that technology-related disputes are a rapidly growing segment of their caseloads.

“What will be most telling is what we see from the contracts that are being written today—and the disputes that arise from them in years to come,” said Benton. “Given the cost, time and uncertainty of litigation, it's hard to ignore the benefits of arbitration. I think we'll continue to see a rise across the board in the technology sector—including in high-tech, biotech and alternative energy.”

He expects the most significant increase will be in cross-border disputes because the technology sector has become global, there is increasing resistance by non-U.S. parties to the cost and intrusiveness of U.S. court processes, and there are legitimate concerns by U.S. parties about the capabilities of foreign judges and the opportunity for fair hearings in foreign courts—particularly in developing countries.

He added, “Arbitration can be a great dispute resolution asset if you do it right. Doing it right includes drafting an appropriate arbitration clause, engaging outside counsel who know how to arbitrate not just litigate, and selecting a qualified arbitrator who knows your field and understands an arbitration is not a court case. Anyone who criticizes arbitration has done it wrong with the wrong clause, counsel or arbitrator, and has suffered the consequences.”